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Altmann calls on FSA to close deposit protection loophole

Pensions expert Ros Altmann has slammed the FSA for allowing financial institutions to pull out of the Financial Services Compensation Scheme and leave savers’ money unprotected.

She has demanded it require banks to honour protection on fixed-term deposits or at least allow savers to switch to other institutions which are protected under the FSCS, if they pull out.

Altmann says: “Disgracefully, there is nothing to stop an institution from pulling out of the scheme and, from that moment on, savers are no longer covered. Even worse, the FSA says the institution can refuse to allow you to transfer your money to another bank that is covered, so your money will be stuck without protection.

“Most people are completely unaware of this risk. FSA regulation is not up to the job and is failing to protect consumers properly. Surely, at the very least, the FSA should ensure that anyone saving in a bank currently under its protection can retain that protection for the lifetime of their fixed term.

“The FSA must rectify this loophole immediately. Do not just wait for a problem to arise, why not pre-empt it? Ordinary consumers rely on the authorities to protect them. Yet the FSA is allowing them to be misled about the security of its protection scheme. It must urgently ensure that the rules are changed to protect innocent savers who invested in good faith.”

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In estimating the cost of statutory regulation, most people would point to the cost of the FSA. Their beautiful offices and almost 3,000 well-paid staff cost the financial services industry over £300m per annum. The compensation scheme has during its existence paid out £1bn and has a payroll of £25m a year. That does not include bailing out Northern Rock, Icelandic banks, etc. Billions have been borrowed which the banking industry, if not nationalised, will have to repay.

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